HRM Final

Incentive Pay for Executives: Short Term vs. Long Term

- Bonuses based on ROI, year's profits, or other measures related to the organization's goals. - Actual payment of bonus may be delayed to gain tax advantages. - Include stock options and stock purchase plans. - Rationale is that executives will want to do what is best for the organization because that will cause the value of their stock to grow. - Balanced scorecard - Securities and Exchange Commission (SEC) has required companies to more clearly report executive compensation levels and the company's performance relative to that of competitors - Dodd-Frank Wall Street Reform and Consumer Protection Act requires that public companies report the ratio of median compensation of all its employees to the CEO's total compensation (2010)

Legal Requirements for Pay: Child Labor

- Children aged 16 and 17 may not be employed in hazardous occupations defined by U.S. Department of Labor. - Children aged 14 and 15 may work only outside school hours, in jobs defined as nonhazardous, and for limited time periods. - A child under age 14 may not be employed in any work associated with interstate commerce. - Exemptions include baby-sitting, acting, and delivering newspapers.

Processes that Make Incentives Work: Participation in Decisions and Communications

- Employee participation in pay-related decisions can be part of a general move toward employee empowerment. - Employee participation can contribute to the incentive plan's success. - Communication demonstrates that the pay plan is fair. - When employees understand the incentive pay plan's requirements, the plan is more likely to influence their behavior as desired. - Important when changing the pay plan.

Equal Employment Opportunity

- Employers must not base differences in pay on an employee's age, sex, race, or other protected status. - No guarantee of equal pay for men and women, white and minorities or any other group - Comparable-worth policies (equal pay due to work that's different but comparable in value) - The Lilly Ledbetter Fair Pay Act of 2009 (180 days to file complaint after last check)

2. What are the legal issues that should be considered when making pay decisions?

- Equal Employment opportunity (equal pay for equal work) - Minimum wage - Overtime pay - Restrictions on child labor

6. What are the two markets that influence how much you might pay your employees? What three basic decisions can you make in relation to the market wage rate? What role does benchmarking play in this decision?

- Labor (Employee) and Product (Competitors) Market - Set by market, rate above market, rate below market - a procedure in which an organization compares its own practices against those of successful competitors

1. What are the main components of the Social Security Act? (FDR New Deal)

- Old age (retirement) insurance - Survivor's insurance - Disability insurance - Hospital insurance (Medicare Part A) - Supplementary medical insurance (Medicare Part B)

Economic Influences on Pay: Product Markets (Competitors between organizations)

- Organization's product market includes organizations that offer competing goods and services. - Organizations compete on quality, service, and price. - Cost of labor is a significant part of an organization's costs.

Economic Influences on Pay: Labor Markets (Competitors with employees)

- Organizations must compete to obtain human resources in labor markets. - Competing for labor establishes minimum an organization must pay to hire an employee for a particular job.

Legal Requirements for Pay: Overtime

- Overtime rate under FLSA is 1½ times employee's usual hourly rate, including any bonuses, and piece-rate payments. Exempt employees - managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay. (Minimum amount: 23.5k yearly, 454/week, no overtime) Nonexempt employees - employees covered by FLSA requirements for overtime pay. Job Description is more important than the job title. Overtime pay is required, whether or not the employer specifically asked or expected the employee to work more than 40 hours. If the employer knows the employee is working overtime but does not pay time and a half, the employer may be violating the FLSA.

14. What is a compra-ratio and what is the purpose behind it?

- Pay structure represents organization's policy, but what the organization actually does may be different. - HR should compare actual pay to pay structure, making sure that policies and practices match. - Compa-ratio is the common way to do this. (How close results are to our plan) - Compa-Ratio (CR) - the ratio of average pay to midpoint of pay range. - If average equals midpoint, CR is 1. (match) - If CR is greater than 1, average pay is above midpoint. (lead) - IF CR is less than 1, average pay is below midpoint. (lag)

13. How are pay differences determined under a skill-based (person focused) pay system?

- Pay structures that set pay according to employees' levels of skill or knowledge and what they are capable of doing. - Appropriate where changing technology requires employees to continually widen and deepen their knowledge. (Pay you for what you could possibly do)

12. What is broadbanding? Why might an organization do this?

- Reducing number of levels in organization's job structure. - More assignments are combined into a single layer called broad bands. - More emphasis on acquiring experience, rather than promotions. -Decreasing pay grade to increase pay range (Higher rates without promotion) (Pay you for what you can do)

1. How are job structure, pay level, and pay structure interrelated?

- Relative pay for different jobs within the organization (Jobs, not positions) - Average amount the organization pays for a particular job. - Pay policy resulting from job structure and pay-level decisions.

3. What are some unacceptable reasons to make distinctions in pay when two people are doing the same work? What are some valid reasons?

- Two employees who do the same job cannot be paid different wages because of gender, race, or age. -Only if there are differences in their experience, skills, seniority, or job performance are there legal reasons why their pay might be different.

6. What are the four areas that might be included on a balanced scorecard?

- a combination of performance measures directed toward the company's long- and short-term goals and used as the basis for awarding incentive pay Four categories of a balanced scorecard include: 1. Financial 2. Customer 3. Internal 4. Learning and Growth

Scanlon Plan

- a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard. Target Ratio: Labor/Sales Value of Production = 20/100 Sales Value of Production: $1,200,000 Goal: 20/100 x $1,200,00 = $240,000 Actual: $210,000 Gain: $240,000-$210,000=$30,000 (Possible waiting till end year to avoid poor productivity in the later months)

11. What are some reasons behind pay differentials?

- adjustment to a pay rate to reflect differences in working conditions or labor markets. - Many businesses in the U.S. provide pay differentials based on geographic location. (COL) (Shift) (Hazard) - The most common approach is to move an employee higher in the pay structure to compensate for higher living costs.

4. What are the main components of the Fair Labor Standards Act? What is the difference between and exempt and nonexempt employee?

- federal law that establishes a minimum wage and requirements for overtime pay and child labor. - Exempt employees: managers, outside salespeople, and other employees not covered by FLSA requirement for overtime pay. (Minimum amount: 23.5k yearly, 454/week, no overtime) - Nonexempt employees: employees covered by FLSA requirements for overtime pay.

Gainsharing

- group incentive program that measures improvements in productivity and effectiveness and distributes a portion of each to employees. (Increase in productivity, more profits/more efficient/effective) -Autonomy, Effort -Citizenship Behaviors -Addresses challenge of identifying appropriate performance measures for complex jobs. -Frees employees to determine how to improve their own and their group's performance.

9. What is a key job? How does it influence general pay rates? What is a pay policy line?

- jobs that have relatively stable content and are common among many organizations. (similar and consistent) - Organizations can make the process of creating the job and pay structures more practical by defining key jobs. - Research for creating the pay structure is limited to key jobs that play a significant role in the organization. - Organization obtains pay survey data for its key jobs. - Pay policy line is established. - Pay rates for non-key jobs are then determined -graphed line showing the mathematical relationship between job evaluation points and pay rate.

Minimum wage, Fair Labor Standards Act (FLSA) 1938

- lowest amount that employers may pay under federal or state law, stated as an amount of pay per hour. - federal law that establishes a minimum wage and requirements for overtime pay and child labor. FLSA establishes a minimum wage of: - $7.25 per hour. FLSA also permits a lower "training wage" - paid to workers under age of 20 for up to 90 days - approximately 85 % of minimum wage. -tips: 2.65 vs 7.25 -1980: 2.15 vs 2.50

Cash Balance Plan

- retirement plan in which the employer sets up an individual account for each employee and contributes a percentage of the employee's salary. - Account earns interest at a predefined rate. - Arrangement helps employers plan their contributions and helps employees predict their retirement benefits. - If employees change jobs, they can roll over balance into an individual retirement account (IRA).

Defined Contribution Plan

- retirement plan in which the employer sets up an individual account for each employee and specifies the size of the investment into that account. - Money purchase plans (invest money into an account and will receive lump sum when retire, usually put into an annuity) - Profit-sharing and employee stock ownership plans - Section 401(k) plans

5. What is a prevailing wage?

- the hourly wage, usual benefits and overtime, paid in the largest city in each county, to the majority of workers, laborers, and mechanics. - established, by the Department of Labor & Industries, for each trade and occupation employed in the performance of public work.

8. What is the purpose of a job evaluation? What are five common compensable factors?

-Administrative procedure for measuring relative internal worth of the organization's jobs. - Experience - Education - Complexity - Working conditions - Responsibility (resources)

Group Bonuses and Team Awards

-Bonuses for group performance tend to be for smaller work groups. -These bonuses reward the members of a group for attaining a specific goal, usually measured in terms of physical output. -Similar to group bonuses, but more likely to use a broad range of performance measures: + Cost savings + Successful completion of a project + Meeting deadlines

7. What are some potential ethical issues with executive incentive pay?

-Incentive pay for executives lays the groundwork for significant ethical issues. -Insider trading -When an organization links pay to its stock performance, executives need the courage to be honest about their company's performance even when dishonesty or clever shading of the truth offers the tempting potential for large earnings. -Equity issue

10. What is a pay grade? How does it relate to a pay range? What is meant by a green or red-circle rate?

-sets of jobs having similar worth or content, grouped together to establish rates of pay. - a set of possible pay rates defined by a minimum, maximum, and midpoint of pay for employees holding a particular job or a job within a particular pay grade. -Decrease pay grade/increase pay range -Increase pay grade/decrease pay range - Red-circle rate: pay at a rate that falls above pay range for the job. (paying too much bc seniority) - Green-circle rate: pay at a rate that falls below pay range for the job. (paying less, trainee/entry level) -rewrite minimum standards if its not fulfilled

4. What is necessary for gainsharing to be successful?

1. Management commitment 2. Need for change or commitment to continuous improvement (TQM) 3. Management acceptance and encouragement of employee input 4. High levels of cooperation and interaction 5. Employment security 6. Information sharing on productivity and costs. 7. Goal setting. 8. Commitment of all involved parties to the process of change and improvement. 9. Performance standard and calculation that employees understand and consider fair and that is closely related to managerial objectives. 10. Employees who value working in groups.

Wage Gap between men and women

82 cents Jan, Feb, March, April -you're paying taxes to the government

9. What are some variations in organization's approaches to offering retirement plans? What is ERISA?

About half of employees working in private business sector have employer-sponsored retirement plans. + Contributory plan - retirement plan funded by contributions from employer and employee. + Non-contributory plan - retirement plan funded entirely by employer contributions. Defined Benefit Plan - pension plan that guarantees a specified level of retirement income. Employer sets up a pension fund to invest contributions. Such plans must meet funding requirements of Employee Retirement Income Security Act (ERISA) of 1974. - Estimate of how much they'll earn after retirement (average of 3-5 highest paid years) - Employer must contribute enough for the plan to cover all benefits to be paid out to retirees. -Popular in the public sector Vesting - will reach retirement benefits when employee reaches a certain year (5-7 years) Employee Retirement Income Security Act (ERISA): federal law that increased responsibility of pension plan trustees to protect retirees, established certain rights related to vesting and portability, and created the Pension Benefit Guarantee Corporation. Pension Benefit Guarantee Corporation (PBGC): federal agency that insures retirement benefits and guarantees retirees a basic benefit if employer experiences financial difficulties. -provides basic retirement benefit if employer fails to benefit

Domestic Partners

Adult non-relatives who lives with the employee in a relationship defined as permanent and financially interdependent. -any type of benefits and cost associated with the domestic partner will tax the salary from the employer

11. What are some ways that organizations can control benefit expenses? What is a cafeteria plan?

Ask employees what they want and survey other companies Cafeteria-style plan: a benefits plan that offers employees a set of alternatives from which they can choose the types and amounts of benefits they want. -benefits that the employee actually wants

15. Be familiar with the four current issues we discussed in class related to pay.

Comparable Worth - paying people the same for doing different jobs (mostly gender dominate) Wage Rate Compression - long tenured employee and the new employee will earn as much or more Pay During Military Duty - How should companies handle employees who are called for active duty in the military for extended time periods? - Uniformed Services Employment and Reemployment Rights Act (USERRA) - increase pay rate up to 5 years from deployment Pay for Executives Based on equity theory, how does executive compensation affect employees?

8. What is the difference between long-term and short-term disability insurance?

Disability - Cannot do the duties of the job. Long-Term Insurance that pays a percentage of a disabled employee's salary after an initial period and potentially for rest of employee's life. 50-70% of yearly salary. Short-Term Insurance that pays a percentage of a disabled employee's salary as benefits to employee for six months or less. Long-Term Care - rest homes, retirement communities, not able to do daily living activities

Life Insurance

Employers may provide life insurance to employees or offer the opportunity to buy coverage at low group rates. Term life insurance - if the employee dies during the term of the policy, the employee's beneficiaries receive a death benefit payment. Usually twice the employee's yearly pay. Additional benefits may include accidental death and dismemberment.

List and briefly discuss the three main components of the Fair Labor Standards Act as well as one other law that influences how employers pay employees (12).

FLSA establishes a minimum wage of: - $7.25 per hour. FLSA also permits a lower "training wage" - paid to workers under age of 20 for up to 90 days - approximately 85 % of minimum wage.

7. How does equity theory influence employee behavior in relation to pay?

Fair Pay (Equity) - Their outcomes/inputs = My outcomes/inputs Unfair Pay (Inequity) - Their outcomes/inputs < My outcomes/inputs - They might put forth less effort (reducing their inputs). - They might find a way to increase their outcomes (e.g., go to the boss with a good argument for a raise, stealing). - They might withdraw (by leaving the organization or refusing to cooperate). -Also influences willingness to accept transfers or promotions

10. What are some family friendly benefits that organizations might offer?

Family Leave (paternity and maternity leave) Child Care Benefits College Savings Plans (529 plan) Elder Care

2. How is unemployment insurance funded? Who is eligible to receive unemployment insurance?

Federal and State taxes on Employers and implemented by track record. Less Layoff, lower premium. -unemployed (in-between jobs) - agencies to help -incentive for employers Eligibility- - They meet requirements demonstrating they had been employed. - They are available for work. - They are actively seeking work. - They were not discharged for cause, did not quit voluntarily, and are not out of work because of a labor dispute. (ppl on strike do not get employement insurance)

Vesting Rights

Guarantee that when employees become participants in a pension plan and work a specified number of years, they will receive a pension at retirement age, regardless of whether they remained with the employer. -0-5 years: employee is 0% vested -5+ years: 100% vested or -3: 20% -4: 40% -5: 60% -6: 80% -7: 100%

Issues in Developing a Pay Structure

Legal Requirements: - Equal Employment opportunity (equal pay for equal work) - Minimum wage - Overtime pay - Restrictions on child labor Market Forces: - Product markets - Labor markets Organization's Goals: - High-quality workforce -Cost control -Equity and Fairness - Legal compliance Pay Level Decision Job Structure Decision Pay Structure Decision: - Pay rates - Pay grades - Pay ranges - Pay differentials

2. What is necessary for incentive pay to be effective?

Linking Performance to Pay - forms of pay linked to an employee's performance as an individual, group member, or organization member. - Incentive pay is influential because the amount paid is linked to certain predefined behaviors or outcomes. - For incentive pay to motivate employees to contribute to the organization's success, pay plans must be well designed. 1. Performance measures are linked to the organization's goals. 2. Employees believe they can meet performance standards. 3. Organization gives employees the resources they need to meet their goals. 4. Employees value the rewards given. 5. Employees believe the reward system is fair. 6. Pay plan takes into account that employees may ignore any goals that are not rewarded.

7. What are the different types of medical insurance plans that organizations offer? Medical expense going up so fast because its so different than any other product. Example: third parties pay for cataracts (cheaper, more common want), patient pays for lasic (more expensive, need surgery). More expensive because people don't take care of their bodies.

Managed Care - insurer has influence on what procedures are paid for (reduce costs of plan by making sure the testing is needed) (Declined in favor) Health Maintenance Organizations (HMO) - employer has insurance only covers certain providers, certain doctors, certain hospitals (providers paid a flat amount, regardless of treatment) (physician make decisions with their medical knowledge (declined in favor)) Preferred Provider Organizations (PPO) - most common employer provided insurance, close to 60%. In-network, not as restrictive, focuses on how much has been agreed to pay for each test and procedure that the both doctor and hospital has agreed on. Look at the list (menu) for a doctor, going out of in-network costs more. Flexible Spending Accounts - put money on a card taken out of paycheck before taxing. Maximum of $5K, used like debit or credit card, you lose the money unused to the employer. Insurers are starting to rollover the unused amount. Consumer-Driven Health Plans (CDHP) - shop around and find out where to get the best quality at the lowest price. Insurers provide you with information to compare rating systems and cost of doctors or procedures. Flexible Spending Accounts are integrated with this. Employer contributes to reach the high deductible for the insurance to kick in. Lowers premium. Employee Wellness Programs (EWP) - not a healthcare plan, focus on reducing the expense of healthcare costs, by providing fitness challenges, activities to walk, a gym to work out, diet plans to promote health. Being apart of the plan, they reduce cost of healthcare.

Pay Level: Deciding What to Pay

Match Strategy - pay rate set by market Lead Strategy - pay above market (Attract best performers) Lag Strategy - pay below market (Simple jobs)

5. What are the types of insurance that an organization might offer to its employees? What is COBRA?

Medical, Life, Disability, Long-Term Care Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 - Federal law that requires employers to permit employees or their dependents to extend their health insurance coverage at group rates for up to 36 months following a qualifying event: + Layoff + Reduction in hours + Employee's death (Twist - your employer can get your insurance cheaper than you)

6. What are the different types of paid time off that an employer might offer?

NONE OF THESE ARE REQUIRED BY LAW - Most common: Vacations, holidays and sick leave - Optional: Jury duty, funerals of family members, military duty, voting or giving blood - Paid holidays (10) - Sick leave is often based on length of service. - Personal days - days off for personal needs - Floating holidays - paid holidays that vary from year to year - Paid time off - a pool of days to use as the employee wants

3. What are the three ways to recognize group performance? Be familiar with a Scanlon plan.

Piecework Rate - A wage based on the amount workers produce Straight Piecework Plan - Incentive pay in which the employer pays the same rate per piece, no matter how much the worker produces. (one value to all production) Differential Piece Rates - Incentive pay in which the piece rate is higher when a greater amount is produced.(Higher value w higher production) Scanlon Plan - a gainsharing program in which employees receive a bonus if the ratio of labor costs to the sales value of production is below a set standard.

List and briefly discuss five methods of individual pay for performance (13).

Piecework Rates - A wage based on the amount workers produce Standard Hour Plans -An incentive plan that pays workers extra for work done in less than a preset "standard time" Merit Pay - A system of linking pay increases to ratings on a performance scale. Individual Bonuses -incentive to reach high performance every year Sales Commissions -incentive pay calculated as a percentage of sales.

1. Be familiar with the various ways an organization can pay for individual performance.

Piecework Rates - A wage based on the amount workers produce (Straight and Different) Standard Hour Plans -An incentive plan that pays workers extra for work done in less than a preset "standard time" Merit Pay - A system of linking pay increases to ratings on a performance scale. (Permanent base pay) - They make use of a merit increase grid. Individual Bonuses -incentive to reach high performance every year (Complete project under budget, sales goals, good driver/no accidents) Sales Commissions (ABC-Always Be Closing) -incentive pay calculated as a percentage of sales. +Straight commission plan - some earn only commissions. -Some earn no commissions at all, but a straight salary. (Realty Sales, 3-6%, Car Sales 25-30%

5. Be familiar with the three ways to reward employees on an organizational level.

Profit Sharing - incentive pay in which payments are a percentage of the organization's profits and do not become part of the employees' base salary. -Profit sharing may encourage employees to think like owners. -Evidence is not clear whether profit sharing helps organizations perform better. (Periodic bonus or no bonus, usually upper level managers acquire this profit) Stock Options -Rights to buy a certain number of shares of stock at a specified price. -Traditionally, stock options have been granted to executives. Employee Stock Ownership Plans - (ESOP) - an arrangement in which the organization distributes shares of stock to all its employees by placing it in a trust. - Most common form of employee ownership.

Summary Plan Description

Report that describes a pension plan's funding, eligibility requirements, risks, and other details. Employers also provide an individual benefit statement which describes employee's vested and unvested benefits

4. Who is eligible for benefits under the FMLA? What is the benefit?

Requires organizations with 50 or more employees to provide up to 12 weeks of unpaid leave: - After childbirth or adoption - To care for a seriously ill family member - For an employee's own serious illness Most have worked a year. Unpaid, Unpaid, Unpaid Leave for 12 Weeks Continue to have other insurance coverage

Benefits Required by Law

Social Security Unemployment Insurance Workers' Compensation Insurance Family and Medical Leave Health Care

List and discuss the legally required benefits (14).

Social Security - flat payroll tax on employees and employers Unemployment Insurance - Payroll tax on employers meeting state requirements and experience ratings Workers' Compensation Insurance - provide coverage according to state requirements. premiums depend on experience rating Family and Medical Leave - up to 12 weeks of unpaid leave for childbirth, adoption, or serious illness Health Care - employers with 50+ employees, payment fee to the federal government is required if conditions of health insurance benefits are not met

Legal Requirements for Pay: Prevailing Wages

Two federal laws govern pay policies of federal contractors: - Davis-Bacon Act of 1931 - Walsh-Healy Public Contracts Act of 1936 Under these laws, federal contractors must pay their employees at rates at least equal to the prevailing wages in the area. (Top 30% of local workers pay) (Racism top driven reason for these acts)

Portal to Portal Act

clarifying that certain activities are generally not compensable working time under the FLSA

3. Who is eligible for worker's compensation? How is it funded? What are the major categories?

workers who suffer work-related injuries or illnesses, or to their survivors. Employer's Insurance 1. Disability income 2. Medical care 3. Death benefits 4. Rehabilitative benefits